In a survey of US insurance companies, Greenwich Associates asked respondents about their use of exchange traded funds (ETFs) and found:
1 The majority of insurance companies use ETFs —and expect to increase usage in the future.
62% of study participants invest in ETFs in their general accounts.
61% of current ETF investors expect to increase their ETF allocations in the next three years.
82% of non-users expect to reconsider investing in ETFs in the next three years.
2 Insurance companies’ use of fixed income ETFs has accelerated.
The April 2017 decision by the National Association of Insurance Commissioners (NAIC) to allow insurers to apply the bond-like accounting treatment of “systematic value” to fixed income ETFs appears to have been a catalyst for growth, with a 69% increase in fixed income ETF assets from 2016 to 2017.1
One third of insurers now use ETFs for core fixed income and modifying exposures; that share is expected to jump to 47% in the next three years.
29% of respondents use ETFs to target specific opportunities, expected to increase to 42% in three years.
3 ETFs support a broad range of applications, across company size and type.
Life companies use more fixed income ETFs (83%); P&C companies use more equity ETFs (92%).
Smaller insurers primarily use ETFs as strategic allocations, whereas larger companies use ETFs for both strategic and tactical portfolio management.
The most common applications for ETFs are eliminate cash friction (47%), optimizing asset allocation (45%), core equity and beyond (42%), implementing liquidity sleeves (34%), core fixed income and modifying exposures (34%).
1 Raghu Ramachandran, “ETFs in Insurance General Accounts,” S&P Dow Jones Indices, May 2018.
2 State Street Global Advisors as of June 30, 2019.
Investing involves risk including the risk of loss of principal. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETFs’ net asset value. Brokerage commissions and ETF expenses will reduce returns.
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ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns.
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